UOB KayHian Research: Demand for steel expected to remain soft

Earnings of local steel players are expected to remain lacklustre, as the weak demand environment continues to persist.

UOB KayHian Research said it expects demand for steel to remain soft for now, with the possibility of gradual recovery at the end of the year.

The research house, which maintained its “underweight” call on the sector, pending the emergence of clear catalysts, noted that local steel prices had risen for the second consecutive month in April 2019.

Local steel bar prices increased slightly to RM2,223 per tonne last month on the revival of mega infrastructure projects.

Apart from iron ore, international scrap and coal price had also started to ease from a high base last month.

“While the average selling price (ASP) improvement was driven by the cost-push factor and anticipation of the revival of mega and infrastructure projects, we believe earnings would remain lacklustre in the absence of demand,” it said in a note yesterday.

The research house added that demand for steel will continue to weaken in the second quarter, in line with muted construction activities, and compounded by the Hari Raya festive season.

Meanwhile, Maybank Investment Bank Research upgraded CSC Steel Holdings to “buy from sell”, on the back of the recently revised anti-dumping duties for the import of cold rolled coils (CRC) steel.

The new duties, it said, will make imports less competitive and enhance the group’s earnings visibility.

It raised its FY19-FY21 earnings per share forecasts by 7%-20% on higher volume and better ASPs, and pushed up its target price to RM1.26.

The anti-dumping duties for CRC imports originating from China, South Korea and Vietnam were recently revised to a range of 2% to 42%, from 3% to 28% previously.

The government made the revision after completing an investigation, with the higher duties to be in effect for about two years, from May 8, 2019 to May 23, 2021.

“We are positive on this latest development as the revision to anti-dumping duties is significant and sufficient to deter the dumping of steel,” it said, adding that the impact on the group’s earnings would be significant, given that

CRC steel product accounted for 45% of its total sales revenue last year.